3 Reasons You Just Might Want To Build An ADU On Your Property

Do you want to:

  1.     Increase your net worth
  2.     Increase your living space
  3.     Increase your income
  4.     All of the above

ADUs (Accessory Dwelling Units) are a great opportunity to do just that! How you ask?

Well, there’s a catch – you have to own a home. And there’s another catch – that home needs to be able to have an ADU built on it….BUT! Don’t worry. Most every residential property in California is eligible…unless you own an townhome and condo…Sorry!

So, if you’re still in the running, let’s dive into the details of how this really works.

Increase Your Net Worth

First, let’s get real. Net worth is the most important financial measure of wealth – Net worth is measured by the value of what you own, minus the debt of what you owe. One of the things building a second unit on your home does is increase your property value. Providing the ADU you build has a value greater than the cost to build it, then you have effectively increased your net worth and created wealth for yourself and your family.

Let’s look at a real-life example:

A client had a property in San Diego that was a valued at about $800,000 as-is. The property had a home that was about 1,200 square feet – the maximum size for an ADU as well. The client had a decent size lot with a detached garage, decided to knock down the garage and build a whole new 1,200 sq ft of living space structure with a carport so they didn’t loose parking. The price per square foot current sale price in the area was at about $650-700. The client’s cost to add their ADU was about $300 per square foot by the time the ADU was designed, permitted and built (all-in). In an area that costs nearly double that price, the client was able to up the property value of the home and increase their net worth as the value of the property was now about $1,350,000, and their cost to build it was only about $360,000. That’s on the high end for a lot of ADU build costs. Nonetheless, it’s a good example of how ADUS can add to your net worth by increasing the value of the property you own – For this client, renting out the property more than covered the costs of the monthly payments on the build, gave them extra income from that rental and they increased their home equity – the bottom line is you only get wealthy by increasing your net worth and ADUs are a great option to do that!

 

Increase Your Living Space

ADUs increase your living space…sometimes a lot, sometimes a little. Part of that extra living space vision is up to you, to your preferences and to your budget, although some of it is limited by government and building code restrictions. Whether you want a He-Shed/She-Shed, work office, place for an aging parent or in-law, place for adult kids and grandkids, or just a separate space to “get away” once in a while, an ADU is the perfect solution.

ADUs come in all shapes and sizes. They can be attached to your main house or detached.  In California, the maximum size is 1,200 sqft with some exceptions (such as the square footage of already existing structures) and varies by city[i]. If you don’t have much of a yard, or want to keep as much of it as you can, you could convert existing space like a garage. You might even be able to put an above garage unit (depending on height restrictions).  Working with a custom designer can tailor make an extra living space to your property and stay in line with city requirements. Do some research on how to organize and use every corner as storage space – it’s okay to binge watch tiny house shows, or Pinterest[ii] maximizing your ADU space storage ideas….do it! Take your vision and living space to the next level.

Increase Your Income

It goes almost without saying that one of the top uses for ADUs is for rentals. Using ADUs for rentals is why California has so aggressively passed ADU legislation making just about any homeowner a qualifying party for having a secondary unit at their home – The goal: Affordable housing. Per the California Department of Housing and Community Development website, “The California Health and Safety Code (HSC), Section 65583(c)(7), requires that cities and counties develop a plan that incentivizes and promotes the creation of ADUs that can be offered at affordable rent for very-low to moderate-income households.”[iii] If you are considering an ADU from a rental standpoint, you’re less concerned with affordable rents (unless your renting to family or friends maybe…) and more with the rental income you can generate. Nonetheless, the governmental push towards ADUs can potentially help on both fronts -for you that means increasing your income.

There are some restrictions on ADUs as rentals in some instances which we won’t detail here (take for instance homes with Jr. ADUs), but in most cases, ADUs can be rented either as long-term or short-term rentals to generate income. Robert Kiyosaki is the well-known financial writer of Rich Dad, Poor Dad. In his book he outlines different kinds of income: Earned, Portfolio and Passive. Earned income is like your day-to-day job. Portfolio income comes from stocks, bonds and other not as liquid assets that are also not necessarily secure. Passive income takes a lot of work upfront and patience and it comes from having assets. Robert states, “an asset puts money in your pocket, a liability takes money out.”[iv] If you build an ADU and refinance it to make payments on the build of $1,000/month and are effectively managing and renting out the property for $3,000/month, you are effectively grossing $2,000/month. If you decided to hire a property management firm, you cover your tenants’ utilities and set aside some money for annual maintenance costs and taxes, your NET is less, but you are still making passive income – Your asset is producing a cash flow greater than your liabilities (mortgage loan). You can use that extra income to pay off your existing mortgage, take a well needed vacation, or just pile up that savings account.

Sound Good, But Not Sure How To Start?

Whether your answer to what you want out of an ADU was A, B, C or D, if you are ready to get started, but have questions, or need a trusted resource, REIG ADU offers free consultations, advice and care throughout your ADU process – from A to U. We partner with designer/architectural firms that are top notch in San Diego, Riverside, Orange and Los Angeles counties and who listen to what YOU want. Our construction division- REIG Construction, can help you when you are ready to build your space and has a reputation for transparency and excellence in work. You can contact us directly through this form (Connect Today)

or by calling us at (760) 201-0635.

[i] https://www.hcd.ca.gov/policy-research/docs/adu_december_2020_handbook.pdf

[ii] https://www.pinterest.com/

[iii] https://www.hcd.ca.gov/policy-research/accessorydwellingunits.shtml

[iv] https://www.richdad.com/3-types-of-income

Are you interested in finding out where to start with your Accessory Dwelling Unit plans? We can help you!